The ebook makes an attempt to offer a finished description and testable idea of the advanced, yet now not unintelligible approach of bank-firm relationships within the dynamic setting of a steadily deregulated monetary industry. It presents either idea and empirical facts that shut bank-firm relationships result in a reduce fraction of financial institution finance. moreover it really is proven that because the mid Nineteen Eighties it's been more and more depending on the character of a courting even if it's a profit for the competitiveness of a company. those findings make it essential to redefine similar to Japan's economic climate regularly and bank-firm relationships in particular.

The e-book makes an attempt to offer a finished description and testable conception of the advanced, yet no longer unintelligible method of bank-firm relationships within the dynamic setting of a progressively deregulated monetary marketplace. It offers either thought and empirical facts that shut bank-firm relationships result in a decrease fraction of financial institution finance.

Extra resources for Financial Intermediation and Deregulation: A Critical Analysis of Japanese Bank-Firm Relationships

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To further understand the role of a leading bank as a "trendsetter" in our model economy, let us consider a multiple agent framework. Suppose that each of n banks holds an initial endowment of lin units of investment capital, where 11 ~ 2 . In this setting, a duplication of effort occurs because each of the n banks must monitor the firm if a control mechanism is to exist. As in Diamond (1984), a delegated monitor makes an effort to avoid this potential duplication of effort. Though Diamond established a broader theory of financial intermediaries as delegated monitors, where investors in general delegate the monitoring function to financial intermediaries, his theory can also be applied to the more specific setting observed in our analysis.

JLIsen In 1988, when asset prices were high, Japanese banks were allowed to count 45 per cent of their equity holdings as part of their tier II capital to meet the Basel risk-based capital ratio. The value of these equities were devoted to meet capital asset requirements, resulting in an increased cost of capital, reducing the incentives of banks to make loans, and contributing to the drop in credit expansion. The Boom-Bust Cycle 19 only a few tentative signs of recovery in the late 1990s (Itami 1998, Albach 1999a).

Trading in the real estate market became very inactive and land did not work as collateral to repay loans or even cover losses. It became apparent that using land and real estate as collateral was a good means to secure individual bank loans when taken separately. However, its function as collateral is very restricted in the case of large bad loans caused by severe depression due to the fall in market values and limited liquidity (Shimizu 1997b). g. Schaede 1996), and exerted pressure on the rest of the financial system.